Lehman Brothers Files for Bankruptcy

New York, NYIn what could be seen as another blow to the hedge fund industry, Lehman Brothers announced on Monday that it has filed for Chapter 11 bankruptcy. Lehman announced the move after it learned that the government would not bail the company out by providing financing for a takeover or restructuring and after talks of a buyout fell through.

On Wednesday, September 10, Lehman's chief executive told investors and analysts that the company had its biggest quarterly loss in its 158 years. The firm's stock then fell rapidly as investors (the company's main investors are large institutions) grew concerned about its financial condition. Despite a plan to rescue the company by splitting it into a "good" bank and a "bad" bank, shares fell sharply—55 percent in three days. At one point, shares in Lehman dropped to below $4 a share, according to The New York Times.

Lehman then began searching for a buyer. However, as of Sunday, both Barclays and Bank of America pulled out of talks with Lehman, forcing the investment company to announce its intentions to file for bankruptcy. According to reports, Lehman lost $60 billion due to bad real estate investments and the collapse of the credit market.

Investors who purchased stock through a Lehman broker are being advised that their shares are safe because Securities and Exchange Commission regulations prevent brokerage firms from using customer shares in their business. What Lehman's bankruptcy filing means for the other financial firms remains to be seen. Lehman Brothers, Merrill Lynch and AIG all face financial disaster. Merrill Lynch has been bought out and AIG has been permitted to lend itself $20 billion.

Meanwhile, Lehman's 25,000 employees are left wondering what the future holds for them. Earlier this year, when JPMorgan Chase purchased Bear Stearns, many employees of Bear Stearns were offered jobs. Those who were let go were provided with a severance package. Employees of Lehman are now concerned that they will not receive severance from the company and will not get much back on their company stock. Since Lehman was not bought out, the firm's employees have no potential job offers with a new buyer awaiting them.

Investors are understandably nervous about what Lehman's move means for them. Even those who do not invest with Lehman Brothers are worried about what the bankruptcy filing means for the investment industry as a whole. It appears that the turmoil in the financial markets is not over—at least not for now.